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spk01: Good afternoon and welcome to Skyworks Solutions' first quarter fiscal year 2022 earnings call. This call is being recorded. At this time, I will turn the call over to Mitch Haas, Investor Relations for Skyworks. Mr. Haas, please go ahead.
spk09: Thank you, Rachel. Good afternoon, everyone, and welcome to Skyworks' first fiscal quarter 2022 conference call. With me today are Liam Griffin, our Chairman, CEO, and President, and Chris Senesal, our Chief Financial Officer. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements. Please refer to our earnings release and recent SEC filings, including our annual report on Form 10-K, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the investor relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call to Liam.
spk10: Thanks, Mitch, and welcome everyone. Skyworks delivered a strong start to the fiscal year, establishing all-time quarterly records for revenue and free cash flow. Looking at the quarter in more detail, We delivered revenue of $1.51 billion above consensus and up 15% sequentially, demonstrating the strength of our broadening product portfolio. Specifically, the mobile business grew 12% sequentially, driven by increasingly complex architectures in 5G phones at our largest customer and momentum across the Android ecosystem. In parallel, our broad markets business achieved a record $477 million in the quarter, up 23% sequentially and 46% year over year. Our growth was fueled by both the continued adoption of our solutions across 5G, IoT, automotive, and wireless infrastructure, and an expanding set of new customers and markets from our recently acquired INA business. Importantly, Skyworks continues to drive strong profit margins and exceptional cash flow. We achieved gross margin of 51.2% and operating margin of 38.8%. We posted earnings per share of $3.14 above consensus and up 20% sequentially. Finally, we generated record Q1 operating cash flow of $582 million. As our first quarter results illustrate, the growth trajectory we established in fiscal 2021 is extending into fiscal 2022. We continue to see deployments accelerating, with 5G cellular subscriptions predicted to grow from 700 million today to more than 4.4 billion by the year 2027. As connectivity becomes more vital to the ways we work, educate, and play, Devices are increasingly integrating 5G with advanced Wi-Fi, precision GPS, Bluetooth, Zigbee, and other wireless protocols, creating the seamless and ultra-fast experience demanded by our customers. The rapid adoption of new wireless technologies enables a proliferating set of use cases, with design wins spanning mobile and broad markets, further bolstered by contributions from our recently completed acquisition. Specifically in mobile, we shipped Sky-5 platforms across leading smartphone OEMs, including Samsung, Oppo, Vivo, and Xiaomi, among others. In enterprise and IoT, we supported Wi-Fi access points at Siemens, powered Netgear's latest Wi-Fi 6 and 6E mesh system, partnered with British Telecom to launch 5G home routers, ramped Wi-Fi 6 and 6E modules at Juniper Networks and Telus, and provided digital isolation solutions for GE consumer appliances. Moving to automotive, we leveraged Sky5 technology to enable telematics, security, driver assist, and other advanced services at leading OEMs. We scaled volume production of timing and isolation products, enabling the leading EV manufacturers. And finally, across the infrastructure and industrial space, we captured design wins at QuickTel for enterprise M2M platforms, delivered industrial IoT solutions to ITRON, Honeywell, and Talus, supporting smart energy and factory automation. We also expanded our position in timing applications at the top five data centers. And as markets evolve, we expect to deploy billions of wireless devices. capitalizing on a strong multi-year growth trend. Advances in cloud and edge computing, autonomous vehicles, and factory automation, together with the emergence of the metaverse, we are intensifying the burden on existing networks, catalyzing demand for our highly integrated and customized platforms. From inception, Skyworks has been a driving force empowering the wireless network revolution. connecting people, places, and things. We invested early and extensively to develop and fabricate cutting-edge technology at massive scale. Today, we're a global leader, providing the essential elements required to deliver the highest performance connectivity platforms in the industry, producing billions of units, integrating core technology nodes, including gallium arsenide, Vulcan surface acoustic wave, as well as the most advanced multi-chip module test and assembly capabilities in the world. Underpinned by this powerful foundation, we are leading the transition of 5G, inspiring a new era of unrivaled innovation. The strength of our balance sheet and consistent outperformance demonstrates the significant value of our vertically integrated model and the compelling advantages it delivers. Looking forward, we are committed to supporting the strategic investments in technology, product development, and world-class manufacturing scale to further extend our market leadership. With that, I will turn the call over to Chris.
spk00: Thanks, Liam. Skyworks revenue for the first fiscal quarter of 2022 was $1.51 billion, up 15% sequentially, driven by continued strong demand across our entire portfolio. Gross profit in the first quarter was 773 million, resulting in a gross margin of 51.2%, up 20 basis points sequentially. Operating expenses were 187 million, or 12.4% of revenue, demonstrating leverage in our operating model while continuing our strategic investments in support of future growth. We generated 586 million of operating income, translating into an operating margin of 38.8%, up 160 basis points sequentially. We incurred $9 million of other expenses, and our effective tax rate was 9.3%, driving net income of $523 million. So strong revenue growth and execution on margins drove diluted earnings per share of $3.14, up 20% sequentially. Turning to the balance sheet and cash flow, first fiscal quarter cash flow from operations was a Q1 record of $582 million. Capital expenditures were $96 million, resulting in an all-time record free cash flow of $486 million and a free cash flow margin of 32%, driven by strong profitability and great working capital management. Inventory levels were reduced by 22 days to 103 days, and receivables were reduced by five days to 47 days. In terms of capital allocation during the quarter, we paid 93 million in dividends and repaid 50 million of our terminal. And we repurchased 1.7 million shares of our common stock for a total of 269 million. In summary, the Skyworks team continues to execute well delivering strong profitability and record-free cash flow in the December quarter, with design wins across our growing product portfolio and customer set, positioning us to outperform through 2022. Now let's move on to our outlook for Q2 of fiscal 2022. We expect to deliver double-digit year-over-year revenue and earnings-per-share growth in the March quarter. and 1.36 billion. At the midpoint of 1.33 billion, revenue for the quarter is expected to increase 13.5% year over year. Gross margin is projected to be in the range of 50.75% to 51.25%. We expect operating expenses of approximately 186 to 188 million. Below the line, we anticipate roughly 10 million in other expense, and a tax rate of approximately 9.5%. We expect our diluted share count to be approximately 166 million shares. Accordingly, at the midpoint of the revenue range, we intend to deliver diluted earnings per share of $2.62, an increase of 11% over Q2 of last year. And finally, given our strong cash flow and confidence in the business model, we will continue to focus on investing in our business while returning cash to the shareholders through both share repurchases and dividends. And with that, I turn the call back over to Liam.
spk10: Thanks, Chris. Despite macro challenges and supply chain specific headwinds, Skyworks delivered excellent first quarter results, underscoring the increasingly diverse composition of our customer base and extending our track record of strong profitability and robust free cash flow generation. This strong performance and outlook reflect our critical position within the wireless ecosystem and how complexity favors Skyworks with its vast IP, deep customer relationships, differentiated manufacturing capabilities, and market-leading solutions. The momentum established in Q1 positions Skyworks for another year of record revenue and earnings. That concludes our prepared remarks. Operator, let's open the lines for questions.
spk01: Thank you. As a reminder, to ask your question, you will need to press star one on your telephone keypad. And to withdraw your question, just press the pound key. Given time constraints, please limit yourself to one question and one follow-up. Thank you. Please stand by while we compile the Q&A roster. Your first question comes from the line of Chris Castle with Raymond James. Sir, your line is open.
spk12: Yes, thank you. Good evening. I guess the first question, can you help us detailing the breakout of broad markets versus mobile in the quarter and what your expectations are for those markets as we go forward into March?
spk00: Yes, Chris. So as we indicated in the prepared remarks, we had very strong performance in broad markets. It was roughly 32%. of our total revenue compared to 22% last year. And so we saw very strong growth, 23% sequentially, 46% on a year-over-year basis. And the growth was driven by ongoing strong demand for wireless connectivity, especially as it relates to IoT solutions. In addition to that, we have a strong contribution, all-time record from the acquired business of the infrastructure and automotive business as well. So great execution in broad markets. On the flip side, of course, you have mobile, which was in the December quarter approximately 68% of revenue. It was up 12% sequentially. It was down 13% year over year, but you have to take into account the timing of the ramp of flagships, especially last year. Just to remember, the large customer had a condensed ramp with a late launch in the late October, early November timeframe. This year, the launch was spread over the September and the December quarter. But great execution there as well in mobile. As it relates to the March quarter, we typically don't really guide by segment, but we just provided the guidance for the March quarter, which is up 13.5% year over year. We do expect both segments to grow double-digit year over year. Of course, stronger in broad markets than it is in mobile.
spk12: Okay, thank you. And just following on to some of the comments that you made, you know, with respect to seasonality. And last year, seasonality was skewed, as you said, because of the late launch of the phones. But, you know, this year there were also capacity constraints affecting your customers also. So, as your largest customer said, that they weren't able to ship as much as they wanted in the December quarter. You know, how does that affect seasonality for the March quarter this year? And does that have any implications for June as well if, you know, some of your customers perhaps are catching up with unfulfilled demand during the March quarter?
spk00: Yeah, Chris. So, again, if you look at the guide we provided for March, down 12% sequentially, up 13.5% year-over-year. But the down 12% sequentially is actually slightly better than normal seasonality, if you compare to the last five years for the March quarter. As you probably remember from the call of our large customer, they left some revenue on the table in the December quarter, and they're still trying to catch up, and they see improvements going into the March quarter. Looking ahead for June, again, we only guide one quarter at a time, but sitting here today, I don't see any reason why June would not be in line with normal seasonality. So we do expect normal seasonality for the June quarter. Also keep in mind that June is just a transition quarter, right? We feel very strong based on our technology roadmap, the products, The design win momentum and the design wins that we have on the book right now, we feel very strong for further sequential growth into the September and December quarter, typically as you see with strong performance in the second half of the year.
spk01: Thank you. The next question comes from the line of Gary Mobley with Wells Fargo Securities. Sir, your line is open.
spk11: Hey, guys. Thanks for taking my question. I'm going to pick up right where you left off, Chris, and ask specifically what you would classify or quantify as a typical June quarter-over-quarter seasonal comp, focusing specifically on the mobile business, and then I follow.
spk00: Yeah, so for the total company, if you look at the average of the last five years in June, we have been – flat to down 5%. So call it an average three, 4% down sequentially in the June quarter. That's the average of the last five years.
spk11: And that's mobile specifically to be clear.
spk00: That is mostly driven by mobile.
spk11: Okay. All right, and then switching gears over to the broad markets business, I know that you have been capacity constrained for that business, and I presume given the upside that you delivered in the December quarter, that's less of an issue or turned out to be less of an issue. So maybe if you can give us an update on where you stand with expanding capacity to support the broad markets business, how the backlog is trending for that business in relationship to the improved supply. And that's it for me. Thank you.
spk10: Yeah, sure. This is Liam. Well, as noted in the prepared remarks, we had a record broad market quarter, $477 million, 46% year over year. There's just a lot more for us to do in those areas. We are extending the reach of customers, new customers. We're driving more complex cellular engines, IoT engines to our customer base. also gaining some traction, meaningful traction with the INA portfolio from Silicon Labs. So that's coming together. And there's so much opportunity in the broad markets business. And we're happy to see the numbers that we're discussing now. But the market PAM there is substantial if you think about the scale and scope of where we can take our products. So there's a lot of work to be done there. But we're really pleased with the effort. Our team is doing well. Having some new customers, you know, in our corner is always great, and we're going to continue to drive in that way. So good stuff, and a lot of good technical synergy as well. So, you know, most of these products do have a kind of a common core in some cases. So it does help us drive through our supply chain very effectively at high velocity and leveraging that scale that we talked so much about.
spk01: Thank you. The next question comes from the line of Ambrish Srivastava from BMO. Your line is open.
spk06: Hi, thank you very much. Pretty tight execution on the balance sheet and cash on the cash flow side. Chris, just a quick housekeeping. What should we expect CapEx to be for this year? And then I had a quick follow-up, please.
spk00: Yes, so CapEx in the quarter was $96 million, which is somewhat light, but we don't really manage the CapEx quarter by quarter. We will definitely continue to invest. This is still early stages in a multi-year 5G upgrade cycle. As Liam just explained, there's a lot of growth opportunities and growth markets. And so we will continue to further invest in our manufacturing, adding more size and scale, but at the same time also supporting the technology roadmaps. We have major success with Bulk Acoustic Wave. And so we are, the revenue of integrated devices that have bar filters inside is growing very strong, and we're supporting that. We're also making the necessary investments in Mexicali, in our back-end operation, supporting advanced packaging and tests. And so, again, we have a lot of growth opportunity for us. We will support that, and we will continue to expand the capacity and pay CapEx.
spk06: Sorry, it's Chris. So just in terms of numbers, double-digit, low double-digit is the right number to be modeling?
spk00: Double-digit.
spk06: For cap intensity? Okay. Okay. And then for my follow-up is, Liam, for you on the broad markets business. Now that you have included the Silicon Lab business, what's the right way to think about the longer-term CAGR for this business? Thank you.
spk10: Yeah, absolutely. You know, we definitely see great opportunity in that portfolio as it is right now. And so levering around that is a very substantial, you know, sales team from the core Skyworks still leveraging the INA portfolio. We've done really well in the last couple of months of introducing the INA products and technologies to customers that we already have, proven customers that we do lots of business with. which is a great synergy for us. We are scaling operationally. The majority of the portfolio in the I&A business had been more of a fabulous play. Over time, we're going to bring that technology under our own roof here at Skyworks and leverage the great scale that we have. So it's a lot of really interesting things that we're doing on the inside, inward looking, but there's tremendous opportunity on the outbound side. So a lot of activity, great people. You know, the spirit in the business there is very high, and the opportunity that we have is tremendous. We really have, you know, a small piece of the total opportunity size that that product line can bring. So I think, you know, we're excited about, you know, the opportunity. We'll continue to report on our results, but thus far things have been going really well.
spk01: Thank you. The next question comes from the line of Blaine Curtis with Barclays. Sir, your line is open.
spk03: Hey, thanks for taking my question. I just wanted to follow back on the mobile side and just make sure I heard you saying, just because we've heard it from so many other companies. But in terms of the March seasonality, we've heard that the largest customer has been pulling more product and maybe has less than a typical seasonal period. They're also launching a new phone that adds 5G. So that's all good. So I'm just trying to understand Are you seeing that – because you make comments that June should be normal, and I think you've now had a couple companies talk about June being down more because March is stronger. I just want to just go back to that point and make sure I understand what you're saying.
spk10: Sure, Blaine. This is Liam. Yeah, I think what you may see here is relatively typical – you know, demand cycle, but then within that demand cycle, where is the technology and how do you grow that technology, even in constant units, right? So, I mean, it won't be constant units, but if we have a baseline. Some of the, you know, enthusiasm around our view going into June is really about design wins that we have, you know, squarely in our site. In some cases, design wins that have been consummated that haven't shipped yet. So, a lot of that is Skyworks specific, but, you know, the typical, calendar or fiscal cycles that we tend to see are still relatively in place. But I will tell you that the opportunity within the devices that we're serving and with the customers that we're serving, we're seeing growth potential there. And that's much more predictable for us because we know exactly what we're winning. We know exactly where that's going. We know how to prepare that operationally and still do that shoulder to shoulder with the leading customers. So we feel really good about it. The macro seasonality could be a little bit different, but we feel very confident in what we're going to do.
spk03: And then just a question for Chris. I think when you bought the Silicon Labs business, you were going to retire debt quite quickly. I think you were actually pretty active on the buyback for December. So with the pullback in the stock, are you thinking about that differently? Anything you can talk about for the remainder of this fiscal year in terms of buybacks versus debt retirement?
spk00: Yeah, Blaine, so currently we have still $2.2 billion of debt on the balance sheet in addition to a billion dollars of cash. So we feel really good about our liquidity position today. In terms of even gross debt, it's less than a turn of EBITDA. And so given what the stock is trading today and what it was trading over the last three months, we have... switched on the buybacks again, and we will continue to do so going forward.
spk01: Thank you. The next question comes from the line of Edward Snyder with Charter Equity Research. Sir, your line is open.
spk08: Thanks a lot. A couple if I could. So Liam, Skyworks traditionally has been very strong in Wi-Fi, the 2.4 gig section I think you own when they use external amps. But that's always been shipped in the phone business into a SIP, a system in a package from a router or somebody else, combined with a lot of other products. But it looks like now finally the Android ecosystem is moving to more of an RF module architecture and where they'll break out the RF separately. So I kind of understand what that means from a content point of view, especially with Wi-Fi 6E. But it poses a problem, doesn't it? I mean, because now in addition to the amps, you've got to have the best filters. You know, 2.4 uses a Toughball filter, and Wi-Fi 6E will use a Toughball filter. So one, are you seeing this shift to modules in Wi-Fi finally? And two... Does it present any difference in content opportunity for you? Does it go up? Does it go down? Does it stay the same? How do you characterize Skyworks positioning if the Android world moves en masse to this new architecture? And I have a follow-up.
spk10: No, that's a good question. I think, you know, I don't know if everybody followed that, but I know where you are. So the bottom line on that, which is great, we have an outstanding position in Wi-Fi today. Just let me make that clear. Very substantial. And it's been going great. But there has been, you know, improvements in technology and demand for higher speeds and higher performance. And in those cases, bulk acoustic wave is a critical element within the Wi-Fi system. So we have ramped Wi-Fi. We have ramped our bulk acoustic wave technology, obviously, in smartphones with a lot of work, a lot of investment. And that's been going great. And now we're seeing that move into Wi-Fi. And we have design wins now. that capture both acoustic wave within a Wi-Fi system, multiple customers. So it's another vector of growth for Skyworks. And a lot of that is in the broad market side, Ed. It's very diverse. You know, it's certainly, you know, we love our handset business, but, you know, you've got a handful of customers. When you get into the connectivity nodes around Wi-Fi and other cases, you have a broadening there. So we're in good position there and in great position also now to start to lever up
spk08: bulk acoustic wave beyond the mobile phone so so it's safe to say you're shipping a coexist ball filter at 2.4 gig which is one of the reasons i thought you even started the ball to protect your wife yeah we we do we have we have that we do have those today and we're going to we're going to continue to go higher in frequency as we move along okay then i could uh You did very well on flagship phones last round. We're now finally moving the transmitter into the diversity section, and you landed that, which is a big coup. So two questions, if I could. What does the content opportunity look like to large discussers in that area? Because you tend to really dominate the diversity section, and, of course, the low bands, too. But now that they've already added that, are we going to see any bigger kickers, or have we got most of what we need there? And then how does this play out with everybody else, Samsung and the – and the Chinese OEMs, one, when do you think they'll move to the transmitted DRX? And two, do you think the same dynamic competitively will play out where you're going to kind of sweep that out and push whoever else like Murata out of it like you did on the flagships?
spk10: Yeah, yeah. So on the higher end, the opportunity there we talked about driving higher performance and filtering and moving up the data rate, you know, going to 6E, all that's working. But then if you go down to the mid-tier, there's tremendous opportunity because there's still the vast majority of phones in the Android world and some of the markets in China are just now stepping up with the higher-performing filters, and they get great performance return for that. So we're doing a lot of work and shoulder-to-shoulder design and work with customers to make sure they see the merits of this technology and you know, the performance upside that they gained for, you know, a couple of incremental dollars. So I think there's a great opportunity there. Coming from a low base, too, so that's not, you know, it isn't just a simple upgrade cycle. It's coming from very low base to mid to higher end. And we'll continue to work along that curve. And, you know, the know-how that you build in mobile and in RF translates very well. So all the hard work and the engineering talent that we have at Skyworks that's been working on flagship phones for years and years. They know how to scale when it goes into Wi-Fi and some of these other wireless technologies. So we look forward to, you know, leveraging that skill set as we meet with new customers.
spk01: Thank you. The next question comes from the line of Craig Ellis with B Riley Securities. Sir, your line is open.
spk04: Yeah, thanks for taking the questions and congratulations on the nice quarter in cash flow. I wanted to start with an operational question. So clearly we've got a very strong demand environment out there right now. And Chris, it sounds like you expect the business to be seasonally strong in the back half of the year. So can you just talk a little bit about how you plan to manage manufacturing loadings as we go through the calendar first and second quarter or your fiscal year? second, third quarters, should we expect to see that you'll build inventory to put yourself in a position or for whatever reason, would inventory stay at a relatively lower level here?
spk00: Yes, Craig. I mean, we do that every year because we do have some large seasonal swings in our business, right? We have typically strong sequential growth in September, December, and then and then down in March and kind of flattish to slightly down in June. That's the seasonal pattern. We, of course, trying to maximize factory utilization and drive efficient use of our capital equipment. And so we are always level loading as much as we can. It's not perfect. That's why you also see some seasonal fluctuations in the gross margins there as well. But we definitely will try to maximize that. Also, you know, in this business, the design wins, we know them way ahead, right? So we know what we win. We know the product. We can start building to a certain extent ahead of it. And we do that every year.
spk04: Yep. Got it. That's helpful. And then I'll flip one over to Liam. William, I think there's a general view out there that this year will be a year for somewhere around 40% growth in the smartphone market, really as we ship a lot more mid-range 5G smartphones. So I know you just talked about some of the things you're excited about on the Android ecosystem, but is it possible to put quantification around the degree of content gain that's left at that tier of the market and beyond that tier, what's still possible for Skyworks?
spk10: Sure, sure. Yeah, I mean, we have two vectors, right? We have kind of the mid-tier moving up, and then you have the premium devices really stepping up with high performance. And both of those portfolios have been great for us, and I think our ability, the years and years of time and investment and shoulder-to-shoulder engineer work, we basically follow the lead with our customers, so we're very flexible. We can go to the highest end And we can also bring companies that haven't engaged and get them on board. And so that continues to grow. And the merits of mobility and wireless connectivity, everyone that's called knows how important that is. So there's a lot of opportunity there. And then if you move out of smartphones, Greg, we had a question on that a few minutes ago. We're really excited by the potential for proliferating connectivity everywhere. You're hearing more about M2M. You're hearing more about automotive. These are real. These are real markets right now. There's Wi-Fi opportunity. It could be cellular. All of these end markets have great promise for us beyond just the mobile phone. And the technologies that we have and the in-house scale that we have really creates flexibility. So we don't have a one-stop shop. We can be very crafty and configurable with our customer depending on the application. So there's a lot of really interesting design wins that we have that really come about with customer problems and our engineers huddling together to solve it. So it's really cool to see, and you're going to see more and more growth around that. But still, you know, the connectivity vector is the primary element here to make it all work.
spk01: Thank you. The next question comes from the line of Brett Simpson with Arita Research. Sir, your line is open.
spk05: Yeah, thanks very much. Maybe two big picture questions, maybe for Liam. First, just Android as a market opportunity for Skyworks. I guess your mobile business is much more skewed towards iOS historically. But if I look at Android, we probably look at about a billion dollars of revenue for Skyworks every year, and there's more than a billion units shipping for Android. So you're getting sort of less than a dollar today of of RF content on average. And I guess just moving to 5G and more modules, can you perhaps just talk about the opportunity that you see ahead of yourselves in terms of getting more strategic with customers or, you know, where you think you can really start to sort of grow your average content per unit in the Android ecosystem? Thanks.
spk10: Sure, sure. That's a great question. Yeah, and you're right. I think there's a lot more opportunity in Android now for us to go get. And it's really about an education opportunity for us. And we're working with these customers. We're demonstrating what a little bit of incremental content can do in terms of the end user's experience. So there's a lot more of a drive there. It's not a technical hurdle for us. I mean, we know how to do it. It's more around how do we craft a solution that provides the technology that and the performance and does it at a price point and a cost point for us where it makes a lot of sense. And that's happening now because as you start to see 5G really accelerate, to really get the performance that's been promised and that's been desired, you've got to put in more content. You've got to put in more filtering that we talked about already in the call. You need to raise the performance of your gallium arsenide technologies. You've got to bring them in. You've got to look at your packaging and testing. and the coexistence issues that happen when you have more and more of these technologies in a single application, whether the application is a phone or something else. So there's a lot there. A couple of things I would say. In the last several months, we've been doing much, much better at the higher end of Android. Customers like Samsung have been very strong. And these are on the new platforms. These are on the highest performing new platforms that they're offering. and then we're going to bring along the Oppo, Vivo, Xiaomi players. In aggregate today, those are still very significant for us, but the content opportunity from today's baseline and where it could go over the next two to three years is quite substantial. So the point that you made at the beginning is definitely well taken. So that's how we see that, and we've got great inroads right now on products that will – they have a little bit of a different – cycle than some of the larger US players. But you should see a lot more content from Skyworks and Android products going into the second half of the year and into 2023. Great.
spk05: Maybe just to follow up, Liam, on Ed's question on Wi-Fi, I guess there's something like over 4 billion units of Wi-Fi that ship every year. And I'd just love to understand the RF time or the opportunity set that you see, especially with the transition to to 6E and some of the changes that we're going to see and how this is packaged up. But I guess we could expect PCs and routers and smartphones and TVs to move quite aggressively towards 6E over the next year or two. But is there anything you can share with us in terms of your strategy and how you plan to address this? Because I guess this transition should be quite positive for RF players like Skyworks that's done very well traditionally in the Wi-Fi space.
spk10: Yeah, no, that's a great point. So the appetite for high-end Wi-Fi is really accelerated, and you can see, you know, the use case opportunity everywhere now, right? You do consumer products, you know, all the way to the super high-end, you have Wi-Fi, whether it's 6 or 6E. So that's all going to move in the right direction for us. And so one of the things that will happen as we move along the curve in Wi-Fi, it'll actually create a cycle not unlike what you see in mobile where content grows, And then content continues to move as the application and the burden on the technology rises, right? That the more important, the higher the speed, the more efficient it needs to be, that's going to require better technology on the semiconductor and the filtering side. So that plays together very, very well for Skyworks. Think about us as kind of the mid to high tier player, but we can step into the low end of the market too. But we are seeing a lift when you start to look at 6 and 6E and Wi-Fi. There's bulk acoustic wave filters there that we've already talked about on this call, but very, very important in the higher-end Wi-Fi, and not today highly populated. It's a cycle there that is on the upswing, and it's still early. And we have to know how to do it. So the wonderful thing there is we have the key elements to get it done, similar elements that we would have in a high-end smartphone, but positioned and scaled and configured in a way to deliver Wi-Fi signals versus cellular. So there's a lot of opportunity there, and it plays into core technologies that we have in-house. So that's a really good question, and it is a key element in our strategy in broad markets is to do more and raise the bar there on overall Wi-Fi performance.
spk01: Thank you. The next question comes from the line of Tristan Guerra with Baird. Sir, your line is open.
spk07: Hi, good afternoon. So you've talked about the strength and opportunities in the Android ecosystem. A few years ago, you really had a green field of opportunities in the three to six gigahertz range, notably at your key customers. So how should we look at the competitive landscape now with Qualcomm recently announced Ultrabo RS, you know, in the sub-70 gig range. MediaTek also getting in that segment. So it feels like that three to six gig segment is where you've gained a significant share a few years ago, starting to get more crowded. And I'm wondering whether there could be ramifications of that, including in the Android ecosystem.
spk10: Yeah, I mean, we're actually in a period pretty significant growth path with the bulk acoustic wave filtering technology that would populate the three to six gig range. We also have a great deal of know-how and complexity on both transmit and receive, and also the way to integrate the complexity around that. So when you're dealing with the high-end smartphones that would demand that kind of performance, you've got to have the isolation, you've got to have you know, the form fit and factor to integrate all of that. Because you're going to carry all of the existing, you know, 4G, 5G stuff around it. And then you have to populate when you get to 3 to 6 gig, there's going to be some additional filtering. And that has to all be coexisting in a way that makes perfect sense within the device itself, current consumption, et cetera, size and scale. So we know how to do that. There's absolutely no gap at all. And we are populating 3 to 6 gig now. And as we mentioned, our BAW filter technology is very robust, extremely competitive in populating some of the most iconic, highest performing phones today. So that same recipe can scale across Android, can go to the highest end. Smartphones can find itself in applications that are not mobile, applications like automotive, for example. So we have the keys for that. So that's something to work on. The market, in some cases, is just starting to demand this technology. In some cases, the market has been behind the technology. But now we're starting to see the intersection with the high-performance technology and the needs of the consumer and the market together. And I think that's where things really are going to accelerate.
spk07: Okay, great. And then as a quick follow-up, obviously you have opportunities for content increases and and share gains. How do you look at the inventory situation in China at small fund OEMs, and is that something we should get concerned over the next few quarters?
spk10: Yeah, you know, for us, we don't see anything. I mean, there's some bumpiness there, but not in the portfolios that we're driving right now. We keep a very, very lean view of our products. And Chris mentioned it in terms of our days of inventory, et cetera. We're not a big distribution play. We go direct. So we have a very clear view of where the demand is, where the products are. And for the most part, things have been kind of short in terms of supply chain, which has limited some of our customers and created some imbalance. I think some of that's getting ironed out now. You know, with Skyworks, as you know, the lion's share of our business is done in-house. We have our own gallium arsenide technology. We have our own TC saw, standard saw, bulk acoustic wave, assembly and test. All that stuff is in-house. So we're able to execute extremely well, even if the conditions are choppy out there in the supply chain. So there can be some movement around that, but, you know, we feel very good about our ability to execute in that way.
spk01: Thank you. The next question comes from the line of Kevin Cassidy with Rosenblatt Security. Sir, your line is open.
spk02: Thank you. Thanks for taking my question. We're getting a lot of information around input costs going up, and I wonder how you're controlling that. It looks like even your OpEx stays kind of flat next quarter, but also just for all your manufacturing, how are you controlling input costs, and what's the outlook for the rest of the year?
spk00: Yeah, Kevin, I mean, this is not a Skyworks-specific issue. There's definitely some input cost increases. But as Liam just said, I mean, we control a lot of our own supply chain, and we have most of the supply chain is actually in-house. Now, we still do buy some third-party materials, and we have seen some increases there. there as well. But you look at the gross margins. I mean, we have been able to slightly improve our gross margins, in part because we do have also a dynamic pricing policy. And that means we increase or decrease prices where we can, depending on competitive landscape and depending on certain increases or decreases in our cost structure as well.
spk02: Okay, great. And just a reminder on the I&A business that you just acquired, what's the manufacturing strategy with that for the longer term?
spk10: Yeah, I mean, right now we are still operating in kind of the fabulous play, although still leveraging our teams in a way that's very cohesive. But there's definitely operational scale advantages with bringing some of the core technologies from the I&A slab business in the core Skyworks facilities. I mean, I think that's what we know. I mean, that's something we're working on right now. And it's 100% in our control. We don't need help from it. We know exactly what we need to do. We just need to get it done. And it will do a lot of things because it will open up the portfolio greatly. There'll be more scale to drive the products. And there's also, as I said earlier, a great synergy with the technologies that we have today and how they can dovetail with the INA business, but also the very, very large roster of customers that the slab INA business has that we can generate and engage our customers today with them. So there's going to be some great synergy there, upside synergy around revenue, and also synergy around operations. So looking forward to seeing that more as we pursue the business longer.
spk01: Thank you, ladies and gentlemen. That concludes today's question and answer session. I'll now turn the call back over to Mr. Griffin for any closing comments.
spk10: Thank you all for participating on today's call. We look forward to talking to you at upcoming investor events. Thank you.
spk01: Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation.
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